<https://in.coursera.org/lecture/negotiation-skills/creating-contracts-consideration-and-legality-DJ7S5#lecture>
<http://schema.org/transcript>
"We're now ready to discuss the second key element in creating a contract, which is called, consideration. And there are technical legal definitions of consideration. Let me just give you a very practical definition, which means that, for a deal to be binding, both sides have to give up something. Now, there are different views of consideration in common law and civil law countries. The general rule is, in civil law countries, consideration is not necessary. in common law countries, it is necessary. However, given our global economy, and the mixture of legal systems in contract negotiation, it's probably a wise thing always to try to include consideration in contracts, just to be safe. Let's try an example. Several years ago, the dean of the business school where I teach, the Ross School of Business, called me, and told me that he was involved in an interesting negotiation. One of our graduates was considering making a large gift to the business school. And the gift was complicated because there were tax considerations involved. And so the Dean was negotiating not only with the donor, but also with his attorneys. And he wanted me to be involved in the negotiation, so I gladly participated in the negotiation. And eventually, the graduate agreed to give the school $30 million, which at that point, was the largest gift in history to any business school. And he structured the gift, so that, rather than writing a check for $30 million, he agreed to make payments over 20 years. He agreed to write a check for 1.5 million each year over a 20 year period. Now, there were no complications with the gift. But let's assume that over the course of the 20 year period, the graduate passed away. And let's assume that his children didn't think that this gift was such a great idea and so stopped payment. The question that would arise is, is this a legally enforceable promise by the graduate? Now in this case, the graduate signed a five page written agreement with all the details of his promise to make the gift of $1.5 million a year. Let's assume that if there is a binding contract, death would not change the contractual obligation. So the only question is, is this a binding gift? When somebody promises to make payments of $1.5 million a year over a 20 year period. So think about that for a second. Press pause if you like to. And then reach your conclusion. Would this be a binding contract or not? The answer depends. And it depends on whether there is consideration or not. At least in common law countries, it depends on whether there is consideration. Clearly the graduate gave up something. He gave up $30 million, or $1.5 million a year. The consideration question would be, did the business school also give up something in exchange? Now, when you look at the five page written agreement, the answer to that question would be yes. The business school promised to start an institute with the name of the graduate. They promised to dedicate rooms at the business school for the institute, to furnish the rooms, to furnish faculty for the rooms, etc. And so in this case, the promise would be enforceable. Even if the children did not want to perform the contract, it would be a legally binding contract, because there was consideration on both sides. Our next key element in creating a contract, and again, these are all elements that should be on your negotiation checklist, it should be in your pocket during every negotiation. And the question is, is the agreement legal? This can be a fairly obvious element. You can think of very clear and simple situations where the agreement is not legal. For example, let's say that I agree to sell you a truckload of cocaine. And you don't deliver. So I sue you in court. And the question is, is this a legal contract? Well, of course not. We've got an offer and an acceptance. We've got an agreement. Presumably we have consideration. I agree to give you the cocaine, you agree to pay for it. But the court, clearly, will not enforce that agreement, because it is not legal. And in fact, after throwing us out of court, probably the local prosecuting attorney will grab us, and arrest us, and we'll end up in criminal proceedings. But in business dealings, the question of whether something is legal or not is not only important, but it's more subtle. So for example, let's assume that you work for a company. And like many companies, this company asks you to sign a non-compete agreement when you are hired by the company. In other words, you sign an agreement that says that, for example, if you leave the company, you cannot work for a competitor for a certain period of time. Let's say, one year. But let's say that you are an entrepreneur, you wanna leave the company and start a competing business, or work for a competitor within that one year period. Then the question is, will a court enforce your non-compete agreement? And, this depends. It's a tough decision for a court, because no court wants to put you out of work for one year in a business where you have developed expertise. So courts look very closely at these agreements around the world. And they ask, for example, is this agreement too broad in terms of geographical area covered? Or is it too broad in terms of the interests involved? These agreements must be crafted so that they are designed to protect an employer interest. And if they go beyond that, then the court might say, well, this agreement is not reasonable, and throw it out. So generally, these agreements are legal. They do not violate public policy. But if they're crafted too broadly than a court will say, well, this agreement is not legal. Now, in certain states, notably California, all of these agreements are considered to be illegal and unenforceable. But in most states, and in most countries, it would be a question for the court to determine whether they are legal or not. So those are some considerations to think about in terms of legality."
<https://in.coursera.org/lecture/negotiation-skills/creating-contracts-consideration-and-legality-DJ7S5>